Royalty Tax Sample Calculation for Deemed Profit Individual Taxpayers

JAKARTA, DDTCNews – The government has officially lowered the Article 23 income tax (PPh) rate on royalties specifically for individual taxpayers who calculate their net income using Deemed Profit.

Director General of Taxes Regulation PER-1/PJ/2023 stipulates that Article 23 Income Tax for resident individual taxpayers who use Deemed Profit is 15% of the 40% royalty value. This means that the effective rate of Article 23 Income Tax on royalties is now 6%.

“The gross amount … for resident individual Taxpayers applying Income Tax calculation using Deemed Profit amounts to 40%  of the total royalty income,” reads Article 2 paragraph (3) of PER-1/PJ/2023, quoted on Tuesday (21/2023). 3/2023).

As such, what is the sample calculation of Article 23 Income Tax on royalties with this new rate? The Directorate General of Taxes (DGT) provides 2 sample cases to calculate Article 23 Income Tax withheld from the income accrued by individual taxpayers who use Deemed Profit. Here are the details.

Example 1

Mr. Barkat is an actor and writer who has produced several bestselling books. In January 2023, Mr. Barkat notifies the Jakarta Senen Small Taxpayer Office of the use of Deemed Profit for the 2023 tax year.

Throughout 2023, Mr. Barkat receives income as an actor of IDR400 million and has been subject to Article 21 Income Tax withholding by the withholding agent of IDR15 million.

Further, in August 2023, Mr. Barkat receives royalty income for the publication of the book ‘Koala Coklat’ from PT Taat Pajak of IDR100 million.

Mr. Barkat has submitted a photocopy of proof of receipt of the notice of the use of Deemed Profit from the Jakarta Senen Small Taxpayer Office to PT Taat Pajak before the withholding.

It should be noted that Deemed Profit for art workers is 50%. For the royalty transaction, PT Taat Pajak as the withholding agent is required to:

1. Withhold Article 23 Income Tax on the royalty of 15% x 40% x IDR 100 million = IDR6 million.

2. Prepare the Article 23 Income Tax withholding receipt for the royalty and submit it to Mr. Barkat.

3. Remit Article 23 royalty Income Tax royalties with code 411124-103 no later than 10 September 2023 and file the Article 23 Income Tax withholding receipt in the Periodic Unification Income Tax Return for the August 2023 period no later than 20 September 2023.

On the other hand, Mr. Barkat as the income recipient must:

1. Credit Article 21 Income Tax of IDR15 million and Article 23 Income Tax of IDR6 million as a deductible for Income Tax payable in the annual tax return for the 2023 tax year.

2. File income as an actor and the royalty in the Annual Tax Return for the 2023 tax year in the net income from independent personal services column with the following calculation:

(actor’s gross income IDR500 million + gross royalty income IDR100 million) x Deemed Profit 50% = freelancer’s net income IDR250 million

Example 2

Mr. Bagas is a songwriter who has produced songs that are widely used by record companies.

In January 2023, Mr. Bagas notifies the Surabaya Rungkut Small Taxpayer Office of the use of Deemed Profit for the 2023 tax year.

Next, in June 2023, Mr. Bagar receives royalty income for the use of his songs from PT Tertib Pajak of IDR4 billion.

Mr. Bagas has previously submitted a photocopy of proof of receipt of the notice of the use of Deemed Profit from the Surabaya Rungkut Small Taxpayer Office to PT Tertib Pajak.

Throughout 2023, Mr. Bagar does not accrue income from business and/or independent personal services.

It should be noted that the amount of Deemed Profit for art workers is 50%. For the above royalty transaction, PT Tertib Pajak as the withholding agent is required to:

1. Withhold Article 23 Income Tax on the royalty of 15% x 40% x IDR4 billion = IDR240 million. 

2. Prepare the Article 23 Income Tax withholding receipt for the royalty and submit it to Mr. Bagas.

3. Remit Article 23 royalty Income Tax royalties with code 411124-103 no later than 10 July 2023 and file the Article 23 Income Tax withholding receipt in the Periodic Unification Income Tax Return for the June 2023 period no later than 20 July 2023.

On the other hand, Mr. Bagas as the income recipient must:

1. Credit Article 23 Income Tax of IDR240 million as a deductible for Income Tax payable in the annual tax return for the 2023 tax year.

2. File income as royalty in the Annual Tax Return for the 2023 tax year in the net income from independent personal services column with the following calculation:

Gross royalty income IDR4 billion x Deemed Profit 50% = freelancer’s net income IDR2 billion.

It should also be noted that the above calculation only applies if the individual freelancer who has been subject to withholding has submitted proof of receipt of the notice of the use of Deemed Profit for the tax year concerned to the income provider before Article 23 Income Tax is withheld.

Deemed Profit is a percentage to determine the amount of net income, thereby, taxpayers may calculate the amount of Income Tax payable in the Annual Tax Return more easily. Those allowed to use Deemed Profit are individual taxpayers conducting business s and/or independent personal services with a gross turnover of less than IDR4.8 billion in 1 year. (sap)